Lecture 2: Market Structure Part I (Perfect Competition
                                                                 and Monopoly)
                                                    EC 105. Industrial Organization
                                                                             Matt Shum
                                                     HSS, California Institute of Technology
EC 105. Industrial Organization ( Matt ShumLectureHSS, Califo2: MarniarketInstituteStructurofe PTaechnolort I (Perfgy)ect Competition and Monopoly)              1 / 23
                                                           Perfect competition
       Market structure #1: Perfect Competition
                Consider market for a single good.
                The perfectly competitive firm is a price taker: it cannot influence
                the price that is paid for its product.
                This arises due to consumers’ indifference between the products of
                competing firms
                          =⇒sothey will buy from store with lowest price.
                Consumers’ indifference arises from:
                          Product homogeneity
                          Consumers have perfect information
                          No transactions cost
                          Many firms
EC 105. Industrial Organization ( Matt ShumLectureHSS, Califo2: MarniarketInstituteStructurofe PTaechnolort I (Perfgy)ect Competition and Monopoly)              2 / 23
                                                           Perfect competition
       Market structure #1: Perfect Competition
                Consider market for a single good.
                The perfectly competitive firm is a price taker: it cannot influence
                the price that is paid for its product.
                This arises due to consumers’ indifference between the products of
                competing firms
                          =⇒sothey will buy from store with lowest price.
                Consumers’ indifference arises from:
                          Product homogeneity
                          Consumers have perfect information
                          No transactions cost
                          Many firms
EC 105. Industrial Organization ( Matt ShumLectureHSS, Califo2: MarniarketInstituteStructurofe PTaechnolort I (Perfgy)ect Competition and Monopoly)              2 / 23
                                                           Perfect competition
       Market structure #1: Perfect Competition
                Consider market for a single good.
                The perfectly competitive firm is a price taker: it cannot influence
                the price that is paid for its product.
                This arises due to consumers’ indifference between the products of
                competing firms
                          =⇒sothey will buy from store with lowest price.
                Consumers’ indifference arises from:
                          Product homogeneity
                          Consumers have perfect information
                          No transactions cost
                          Many firms
EC 105. Industrial Organization ( Matt ShumLectureHSS, Califo2: MarniarketInstituteStructurofe PTaechnolort I (Perfgy)ect Competition and Monopoly)              2 / 23